Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD
Investment Adviser
Western Asset Management Company
Pasadena, CA
Board of Trustees
John F. Curley, Jr., Chairman
Edmund J. Cashman, Jr.
Richard G. Gilmore
Charles F. Haugh
Arnold L. Lehman
Dr. Jill E. McGovern
T. A. Rodgers
Edward A. Taber, III
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Custodian
State Street Bank & Trust Company
Boston, MA
Counsel
Kirkpatrick & Lockhart LLP
Washington, D.C.
Independent Auditors
Ernst &Young LLP
Philadelphia, PA
This fund is neither insured nor guaranteed by the
U.S. Government. There can be no assurance that the
fund will always be able to maintain a stable net
asset value of $1.00 per share.
This report is not to be distributed unless preceded or
accompanied by a prospectus.
Legg Mason Wood Walker, Incorporated
- --------------------------------------------------------------------------------
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (bullet) 539 (bullet) 0000
LMF-018
Report to Shareholders
For the Year Ended
August 31, 1997
The
Legg Mason
Cash
Reserve
Trust
Putting Your Future First
[Legg Mason Logo]
FUNDS
<PAGE>
To Our Shareholders,
The Legg Mason Cash Reserve Trust now has $1.34 billion invested in a
diversified portfolio of high quality fixed income securities with relatively
short maturities.
As this letter is written on October 13th, the Trust's annualized yield for
the past 7 days is 4.79%* (an effective yield of 4.90% when the compounding
effect of dividend reinvestments is included). The average weighted maturity of
our portfolio is 69 days.
A complete listing of the Trust's portfolio holdings at August 31, 1997
appears in this report. You will note that approximately 60% of the Trust's
portfolio is invested in U.S. government and government agency securities and
repurchase agreements fully secured by such securities.
Ernst &Young LLP, Cash Reserve Trust's independent auditors, have completed
their annual examination, and audited financial statements for the Trust's
fiscal year ended August 31, 1997 are included in this report. We will continue
to work hard to provide you with a competitive investment return, consistent
with high portfolio quality.
You may add to your Cash Reserve Trust account at any time by sending a
check for $500 or more (made payable to Legg Mason Cash Reserve Trust) to:
Legg Mason Cash Reserve Trust
P.O. Box 1476
Baltimore, Maryland 21203-1476
Please include your account number on any checks you send to us.
Sincerely,
/s/ John F. Curley, Jr.
-----------------------
John F. Curley, Jr.
Chairman
October 13, 1997
- ------------------
*The yields shown here are for past periods and are not intended to indicate
future performance.
<PAGE>
Statement of Net Assets
Legg Mason Cash Reserve Trust
August 31, 1997
(Amounts in Thousands)
Par Rate Value
- ----------------------------------------------------------------
Asset-backed Securities -- 2.3%
Albertsons' Inc.
$ 3,000 3/26/98 5.650% $ 2,997
Associates Corporation N.A.
1,000 5/15/98 7.250 1,010
Associates Corporation N.A.
16,000 8/15/98 6.375 15,065
Capita Equipment
Receivables Trust 96-1
420 10/15/97 5.600 420
Greentree Financial
Corporation 97-2
2,610 4/15/98 5.617 2,610
Household Finance
5,000 1/22/98 6.760 5,019
Liberty Mutual Capital
Corporation
4,000 6/1/98 5.960 4,003(A)
----------
Total Asset-backed Securities 31,124
- ----------------------------------------------------------------
Bank Notes -- 3.0%
Bank of Hawaii
2,000 11/7/97 5.630 2,000
Bank of Hawaii
28,000 12/1/97 5.590 28,000
International Financial
Corporation
5,000 1/15/98 8.125 5,042
NationsBank Corporation
5,000 1/15/98 6.625 5,013
----------
Total Bank Notes 40,055
- ----------------------------------------------------------------
Certificates of Deposit -- 12.1%
Bankers Trust
20,000 7/17/98 5.910 19,992
Bankers Trust
20,000 8/12/98 5.980 19,992
Bankers Trust
15,000 8/28/98 5.970 14,996
Huntington National Bank
20,000 9/3/97 5.770 20,000
JP Morgan
19,000 7/28/98 5.800 18,993
Old Kent Bank
25,000 11/19/97 5.540 25,000
Societe General
13,800 7/24/98 5.890 13,804
Societe General
5,000 5/19/98 6.160 5,000
US National Bank of Oregon
25,000 11/7/97 5.600 25,000
----------
Total Certificates of Deposit 162,777
- ----------------------------------------------------------------
Par Rate Value
- ----------------------------------------------------------------
Commercial Paper -- 16.6%
Allstate Corporation
$ 5,000 6/15/98 5.875% $ 5,003
Bellsouth Telecom
2,661 6/8/98 5.250 2,647
CIT Group Holdings
8,000 7/31/98 6.350 8,035
Carolina Power & Light
8,000 7/1/98 5.375 7,966
Caterpillar Financial
Services Corporation
1,500 6/11/98 6.410 1,507
First Chicago NBD
Corporation
3,600 6/1/98 8.500 3,670
Ford Capital
10,000 8/15/98 9.000 10,276
Ford Motor Credit
15,000 12/1/97 7.125 15,048
Ford Motor Credit
400 3/25/98 9.000 407
Ford Motor Credit
3,000 6/15/98 9.250 3,078
GE Capital Corporation
1,060 4/8/98 5.500 1,057
GTE Corporation
17,000 3/1/98 8.850 17,249
GTE Corporation
2,200 3/1/98 8.850 2,232
General Motors
Acceptance Corporation
1,100 7/13/98 6.000 1,099
General Motors
Acceptance Corporation
7,725 6/4/98 6.500 7,750
Heller Financial
28,900 3/15/98 9.375 29,424
Hertz Corporation
6,620 2/2/98 8.300 6,682
IBM Corporation
3,000 11/1/97 6.375 3,002
JC Penney
10,500 10/15/97 10.000 10,553
KFW International Finance
3,000 3/12/98 8.250 3,034
NationsBank Corporation
1,500 9/15/98 5.125 1,488
Norwest Financial
Incorporated
6,555 9/1/98 6.230 6,580
Old Kent Bank
4,500 4/15/98 6.875 4,528
2
<PAGE>
Par Rate Value
- ----------------------------------------------------------------
Commercial Paper -- Continued
Pitney Bowes Credit Corporation
$10,000 10/20/97 5.610% $ 9,924
Receivables Capital
Corporation
28,000 9/11/97 5.530 27,957
Receivables Capital
Corporation
22,000 10/1/97 5.530 21,899
Toyota Motor Group
2,000 3/17/98 5.625 1,997
USL Capital Corporation
5,000 11/1/97 7.000 5,008
Virginia Electric & Power
4,000 6/1/98 9.375 4,098
----------
Total Commercial Paper 223,198
- ----------------------------------------------------------------
Medium-term Notes -- 1.1%
General Motors Acceptance
Corporation
5,000 10/30/97 5.625 4,999
Merrill Lynch and Company
10,000 8/10/98 5.880 10,000
----------
Total Medium-term Notes 14,999
- ----------------------------------------------------------------
Time Deposits -- 4.1%
American Express
Centurion
20,000 9/12/97 5.530 20,000
Bank of America
Corporation
20,000 10/27/97 5.780 20,000
Mellon Bank Corporation
15,000 9/8/97 5.700 15,000
----------
Total Time Deposits 55,000
- ----------------------------------------------------------------
U.S. Government Agency Obligations -- 34.7%
Federal Farm Credit Bank
50,880 9/2/97 5.500 50,880
10,000 9/2/97 5.270 10,000
25,000 9/19/97 5.420 24,933
30,000 10/1/97 5.620 30,000
20,000 11/3/97 5.680 20,000
Federal Home Loan
Mortgage Corporation
28,000 9/3/97 5.410 27,992
1,000 9/11/97 5.460 998
30,000 9/15/97 5.430 29,937
20,000 9/24/97 5.460 19,930
15,000 9/25/97 5.435 14,946
100,000 9/30/97 5.445 99,561
Par Rate Value
- ----------------------------------------------------------------
U.S. Government Agency Obligations -- Continued
Federal National Mortgage
Association
$ 25,000 9/12/97 5.420% $ 24,959
20,000 9/25/97 5.410 19,928
50,000 9/25/97 5.450 49,818
20,000 11/13/97 5.690 20,000
12,000 6/30/98 5.750 12,007
Student Loan Marketing
Association
10,000 2/25/98 5.535 9,995
----------
Total U.S. Government
Agency Obligations 465,884
- ----------------------------------------------------------------
Repurchase Agreement -- 23.8%
J.P. Morgan Securities, Inc.
5.60% dated 8/29/97 to be
repurchased at $319,344 on
9/2/97 (Collateral: $53,480
Fannie Mae, 0%-7.27% due
9/12/97-7/27/26 value
$54,920, $66,000 Student Loan
Marketing Association 5.47%
due 10/17/97 value $66,455,
$24,100 Federal Home Loan
Bank 5.655%-6.015% due
3/11/99-8/25/00 value
$24,578, $10,450 Federal
Farm Credit Bank, 5.63%
due 1/2/98 value $10,641,
$168,195 Federal Home
Loan Mortgage Corporation,
5.19%-7.10%, due 1/20/99-
319,145 7/9/07 value $172,040) 319,145
- ----------------------------------------------------------------
Total Investments -- 97.7%
(at amortized cost and value) 1,312,182(B)
Management and Distribution
Fees Payable -- (N.M.) (646)
Other Assets Less
Liabilities-- 2.3% 31,103
----------
Net assets applicable to
1,342,622 shares
outstanding-- 100.0% $1,342,639
==========
Net asset value per share $1.00
=====
- ----------------------------------------------------------------
(A)Rule 144a Security--A security purchased pursuant to Rule 144a under the
Securities Act of 1933 which may not be resold subject to that rule except
to qualified buyers.
(B)Also represents cost for federal income tax purposes
N.M. Not meaningful
See notes to financial statements
3
<PAGE>
Statement of Operations
Legg Mason Cash Reserve Trust
For the Year Ended August 31, 1997
<TABLE>
<CAPTION>
(Amounts in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Investment Income:
Interest $69,833
Expenses:
Management fee $6,110
Distribution fee 833
Transfer agent and shareholder servicing expense 1,907
Custodian fee 200
Reports to shareholders 182
Audit and legal fees 131
Registration fees 78
Trustees' fees 11
Other expenses 54
------
Total expenses 9,506
-------
Net Investment Income 60,327
Net Realized Gain on Investments 324
- ------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations $60,651
=======
</TABLE>
-----------------------------------------------
Statement of Changes in Net Assets
Legg Mason Cash Reserve Trust
<TABLE>
<CAPTION>
For the Years Ended August 31,
(Amounts in Thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Change in Net Assets:
Net investment income $ 60,327 $ 59,008
Net realized gain on investments 324 114
---------- ----------
Increase in net assets resulting from operations 60,651 59,122
Distributions to shareholders from net investment income (60,327) (59,008)
Contribution from Manager -- 400
Increase in net assets from Trust share transactions 117,834 70,837
---------- ----------
Change in net assets 118,158 71,351
Net Assets:
Beginning of year 1,224,481 1,153,130
---------- ----------
End of year $1,342,639 $1,224,481
========== ==========
</TABLE>
See notes to financial statements.
4
<PAGE>
Financial Highlights
Legg Mason Cash Reserve Trust
Contained below is per share operating performance data for a share of
beneficial interest outstanding, total investment return, ratios to average net
assets and other supplemental data. This information has been derived from
information provided in the financial statements.
<TABLE>
<CAPTION>
For the Years Ended August 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Per Share Operating Performance:
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------
Net investment income .05 .05 .05 .03 .03
Net realized gain (loss) on investments Nil Nil Nil (Nil) --
---------------------------------------------------------------------
Total from investment operations .05 .05 .05 .03 .03
---------------------------------------------------------------------
Dividends paid from:
Net investment income (.05) (.05) (.05) (.03) (.03)
---------------------------------------------------------------------
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
=====================================================================
Total return 4.84% 4.92% 5.08% 3.08% 2.85%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses .75% .70% .71% .72% .76%
Net investment income 4.73% 4.81% 5.03% 3.05% 2.82%
Net assets, end of year (in thousands) $1,342,639 $1,224,481 $1,153,130 $786,321 $754,996
</TABLE>
See notes to financial statements.
-----------------------------------------------
Notes to Financial Statements
Legg Mason Cash Reserve Trust
(Amounts in Thousands)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Cash Reserve Trust ("Trust") is registered under the
Investment Company Act of 1940, as amended, as an open-end, diversified
management investment company. The policies set forth below are in
conformity with generally accepted accounting principles.
Security Valuation
Portfolio securities are valued under the amortized cost method,
which approximates current market value. Under this method, securities are
valued at cost when purchased and, thereafter, a constant proportionate
amortization of any discount or premium is recorded until maturity of the
security.
Dividends to Shareholders
Dividends are declared daily and paid monthly. Dividends payable are
recorded on the dividend record date. Net investment income for dividend
purposes consists of interest accrued, original issue and market discount
earned, less amortization of market premium and accrued expenses. At
August 31, 1997, dividends payable of $2,765 were accrued.
Security Transactions
Security transactions are accounted for on
the trade date and the cost of investments sold is determined by use of
the specific identification method for both financial reporting and income
tax purposes.
5
<PAGE>
Notes to Financial Statements -- Continued
Legg Mason Cash Reserve Trust
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Repurchase Agreements
All repurchase agreements are fully collateralized by obligations
issued by the U.S. government or its agencies and such collateral is in
the possession of the Trust's custodian. The value of such collateral
includes accrued interest.
Federal Income Taxes
No provision for federal income or excise taxes is required since the
Trust intends to continue to qualify as a regulated investment company and
distribute all of its taxable income to its shareholders.
Use of Estimates
The preparation of the financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
2. Trust Share Transactions:
The Trust is authorized to issue an unlimited number of full and
fractional shares of beneficial interest (without par value). At August
31, 1997, net assets consisted of paid-in capital of $1,342,622 and
accumulated net realized gain of $17. Since the Trust has sold and
redeemed shares at a constant net asset value of $1.00 per share, the
number of shares represented by such sales and redemptions is the same as
the amounts shown below for such transactions:
For the Years Ended August 31,
1997 1996
- --------------------------------------------------------------
Shares sold $4,783,717 $4,744,925
Shares reinvested 58,446 57,357
Shares repurchased (4,724,329) (4,731,444)
- --------------------------------------------------------------
Net increase $ 117,834 $ 70,837
==============================================================
3. Transactions with Affiliates:
The Trust has a management agreement with Legg Mason Fund Adviser,
Inc. ("Manager"), a corporate affiliate of Legg Mason Wood Walker,
Incorporated ("Legg Mason"), a member of the New York Stock Exchange and
the distributor for the Trust. Under this agreement, the Manager provides
the Trust with management and administrative services for which the Trust
pays a fee at an annual rate ranging from 0.50% of the first $500 million
of average daily net assets of the Trust to 0.40% of average daily net
assets in excess of $2 billion. For the year ended August 31, 1997, the
management fee was $6,110.
Administrative personnel and services are provided by Legg Mason at
no additional expense to the Trust.
Western Asset Management Company ("Adviser"), a corporate affiliate
of the Manager and Legg Mason, serves as investment adviser to the Trust.
The Adviser is responsible for the actual investment activity of the
Trust, for which the Manager pays the Adviser a fee at an annual rate
equal to 30% of the fee received by the Manager. For the year ended August
31, 1997, the advisory fee was $1,833.
Effective January 10, 1997, Cash Reserve Trust began compensating
Legg Mason for distribution costs and services at an annual rate equal to
0.10% of its average daily net assets. Legg Mason has agreed to limit such
fees paid by the Fund to 0.10% for the next two years. If this voluntary
limit is not extended beyond January 10, 1999, Cash Reserve Trust may pay
Legg Mason a fee for its distribution services in an amount not to exceed
an annual rate of 0.15% of the Fund's average daily net assets. For the
year ended August 31, 1997, the distribution fee was $833.
During the year ended August 31, 1996, Legg Mason contributed $400 to
offset a portion of a prior year's net realized loss.
Legg Mason has an agreement with the Trust's transfer agent to assist
with certain of its duties. For this assistance, Legg Mason was paid $566
by the transfer agent for the year ended August 31, 1997.
6
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Shareholders and Trustees of
Legg Mason Cash Reserve Trust:
We have audited the accompanying statement of net assets of the Legg
Mason Cash Reserve Trust as of August 31, 1997, and the related statement
of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned as of August 31,
1997, by correspondence with the Trust's custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of Legg Mason Cash Reserve Trust at August 31, 1997, the results
of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and financial
highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Philadelphia, Pennsylvania
September 26, 1997
7
